• Dr. P. Basaiah

The microfinance industry is finding that rapid growth introduces new questions and issues. One of the biggest barely appeared on most radar screens just a few years ago currency risk. Five years ago, there were few U.S. dollars in the microfinance system. Loans were made by international aid institutions and local commercial banks to microfinance institutions (MFIs) in local currencies, and were distributed to local borrowers in those same currencies. Few foreign investors were demanding an actual return on their money. So if there was a sharp depreciation in a currency, no one asked for or expected to be compensated for the loss. That has all changed. Commercial microfinance has introduced MFIs to a new source of funding: dollar-, euro-, and yen-based private investors who expect to be paid back in their own currency. Unfortunately, most MFIs that borrow from foreign funds turn around and lend them out to places like Indonesia, Guatemala, Russia and a dozen other developing markets whose weak local currencies are frequently depreciating against the world’s hard currencies. As companies, banks, governments and investors all discovered during the Mexican peso crisis of 1994-95 and again in the Asian currency crisis of 1997, borrowing in dollars and lending in local currencies is extremely risky. Traditional money managers reduce FX risk by using various techniques, including currency hedges, portfolio diversification, and maintenance of dollar accounts in local banks. Almost across the board, however, MFIs are not taking any steps to reduce their foreign currency risk. This paper assesses just how big the problem of currency risk is for MFIs, and for the industry as a whole. It looks at how commercial investors are affected by that risk, and examines possible solutions to the problem.

CHALLENGES OF MICRO FINANCE – A CONCEPTUAL ANALYSIS

"CHALLENGES OF MICRO FINANCE – A CONCEPTUAL ANALYSIS ", International Journal of Emerging Technologies and Innovative Research (www.jetir.org), ISSN:2349-5162, Vol.5, Issue 3, page no.108-112, March-2018, Available :http://www.jetir.org/papers/JETIR1803290.pdf

"CHALLENGES OF MICRO FINANCE – A CONCEPTUAL ANALYSIS ", International Journal of Emerging Technologies and Innovative Research (www.jetir.org | UGC and issn Approved), ISSN:2349-5162, Vol.5, Issue 3, page no. pp108-112, March-2018, Available at : http://www.jetir.org/papers/JETIR1803290.pdf